acct2020 introduction to accounting for non-business majors chapter 8

7/23/2019 ACCT2020 Introduction to Accounting for Non-Business Majors Chapter 8

http://slidepdf.com/reader/full/acct2020-introduction-to-accounting-for-non-business-majors-chapter-8 1/17

Reporting and InterpretingReporting and Interpreting

Property, Plant and Equipment;Property, Plant and Equipment;

Natural Resources; andNatural Resources; andIntangiblesIntangibles

Chapter 8

McGra!"ill#Irin $ %&&' (he McGra!"ill Companies, Inc)



Slide 2McGra!"ill#Irin

Measuring and Recording *cquisitionCost

Acquisition cost includes the purchase price and allexpenditures needed to prepare the asset for its intended use.

Acquisition cost does not include

financing charges and cash discounts.

Acquisition cost includes the purchase price and allexpenditures needed to prepare the asset for its intended use.

Acquisition cost does not include

financing charges and cash discounts.

Buildings

• Purchase price

• Renovation and repair costs

• Legal and realty fees

• Title fees

Buildings

• Purchase price

• Renovation and repair costs

• Legal and realty fees

• Title fees



Slide 3McGra!"ill#Irin

Measuring and Recording *cquisitionCost

Equipment• Purchase price

• nstallation costs

• !odification to "uildingnecessary to installequip#ent

• Transportation costs

Equipment• Purchase price

• nstallation costs

• !odification to "uildingnecessary to installequip#ent

• Transportation costs

Land• Purchase price

• Real estate co##issions

• Title insurance pre#iu#s

• $elinquent taxes

• Surveying fees

• Title search and transfer fees

Land• Purchase price

• Real estate co##issions

• Title insurance pre#iu#s

• $elinquent taxes

• Surveying fees

• Title search and transfer fees

Land is not depreciable.

Land is not depreciable.



Slide %McGra!"ill#Irin

*cquisition by Construction

Asset cost includes:

Asset cost includes:

All materials and

labor traceable to

the construction.

A reasonable

amount of

overhead.

Interest on debt

incurred during

the construction.



Slide &McGra!"ill#Irin

Repairs, Maintenance, and *dditions

Type of Capital or

Ependiture !evenue Identifying Characteristics

"rdinary !evenue #. $aintains normal operating condition

repairs and %. &oes not increase productivity

maintenance '. &oes not etend life beyond original

estimate

Etraordinary Capital #. $a(or overhauls or partial

repairs replacements

%. Etends life beyond original estimate

Additions Capital #. Increases productivity

%. $ay etend useful life

'. Improvements or epansions



Slide 'McGra!"ill#Irin

&epreciation is a cost allocation process thatsystematically and rationally matches acquisition costs

of operational assets )ith periods benefited by their use.

&epreciation is a cost allocation process thatsystematically and rationally matches acquisition costsof operational assets )ith periods benefited by their use.

Cost

Allocation*+nused,

Balance -heet

*+sed,

Income -tatement

Epense

+epreciation Concepts

AcquisitionCost

$epreciation(xpense

nco#eState#ent

)alance

Sheet

Accu#ulated

$epreciation

$epreciation for the current year

Total of depreciation

to date on an asset


http://slidepdf.com/reader/full/acct2020-introduction-to-accounting-for-non-business-majors-chapter-8 7/17Slide *McGra!"ill#Irin

+epreciation Concepts

(he calculation o depreciation requiresthree amounts or each asset-

*cquisition cost)

Estimated useul lie) Estimated residual .alue)

(he calculation o depreciation requiresthree amounts or each asset-

*cquisition cost)

Estimated useul lie)

Estimated residual .alue)

Alternative depreciation

methods:/traight!line

0nits!o!production

*ccelerated Method- +eclining

Alternative depreciation

methods:/traight!line

0nits!o!production

*ccelerated Method- +eclining


http://slidepdf.com/reader/full/acct2020-introduction-to-accounting-for-non-business-majors-chapter-8 8/17Slide +McGra!"ill#Irin

Measuring *sset Impairment

#pair#ent is the loss of a significant portionof the utility of an asset through . . .

• ,asualty.

• -"solescence.

• Lac of de#and for the asset/s services.

!ecognie aloss )hen

an asset

suffers a

permanent

impairment.

$isposal of Property0 Plant and (quip#ent1oluntary disposals

•Sale• Tradein

• Retire#ent

nvoluntary disposals• 4ire

• Accident

$isposal of Property0 Plant and (quip#ent1oluntary disposals

• Sale• Tradein• Retire#ent

nvoluntary disposals• 4ire

• Accident


http://slidepdf.com/reader/full/acct2020-introduction-to-accounting-for-non-business-majors-chapter-8 9/17Slide 5McGra!"ill#Irin

+isposal o Property, Plant, andEquipment

/ournalie disposal by:

0riting off accumulated

depreciation *debit,.

0riting off the

asset cost *credit,.

!ecording cash

received *debit,

or paid *credit,.

!ecording a

gain *credit,

or loss *debit,.

+pdate depreciation to the date of disposal.



*cquisition and +epletion o NaturalResources

Eamples: oil1 coal1 gold

Etracted from

the natural

environment.

A noncurrent

asset presented

at cost less

accumulated

depletion.

Total cost of

asset is the cost

of acquisition1

eploration1

and development.

Total cost is

allocated over

periods benefited

by means of

depletion.

&epletion is li2e units3of3production depreciation.



*cquisition and *morti1ation oIntangible *ssets

4oncurrent assets

)ithout physical

substance.

4oncurrent assets

)ithout physical

substance.

+seful life is

often difficult

to determine.

+seful life is

often difficult

to determine.

+sually acquired

for operational

use.

+sually acquired

for operational

use.

"ften provide

eclusive rights

or privileges.

"ften provide

eclusive rights

or privileges.Intangible

Assets

Record at current cash equivalent cost0 including

purchase price0 legal fees0 and filing fees.



"ccurs )hen onecompany buys

another company.

The amount by )hich the purchase price eceedsthe fair mar2et value of net assets acquired.

"nly purchasedgood)ill is an

intangible asset.

8ood9ill


5ood)ill is not amortied. Its value must be revie)edat least annually for possible impairment1 and the

boo2 value is reduced to fair value if impaired.

5ood)ill is not amortied. Its value must be revie)edat least annually for possible impairment1 and the

boo2 value is reduced to fair value if impaired.



Trademar2s • A sy#"ol0 design0 or

logo associated 9ith

a "usiness.

• An exclusive legal right

to use a na#e0 i#age

or slogan.

• Purchased trade#arsare recorded at cost.

Trademar2s • A sy#"ol0 design0 or

logo associated 9ith

a "usiness.

• An exclusive legal right

to use a na#e0 i#age

or slogan.

• Purchased trade#arsare recorded at cost.


Copyrights • The exclusive right to

pu"lish0 use0 and sell a

literary0 #usical0 or

artistic 9or.

• Legal life is life of

creator plus *7 years.

• A#orti:e cost over theperiod "enefited.

Copyrights • The exclusive right to

pu"lish0 use0 and sell a

literary0 #usical0 or

artistic 9or.

• Legal life is life of

creator plus *7 years.

• A#orti:e cost over theperiod "enefited.


http://slidepdf.com/reader/full/acct2020-introduction-to-accounting-for-non-business-majors-chapter-8 14/17Slide 6%McGra!"ill#Irin


6atents • (xclusive right granted "y the federal govern#ent to sell or

#anufacture an invention.

• ,ost is purchase price plus legal cost to defend.• A#orti:e cost over the shorter of useful life or 27 years.

• Research and develop#ent costs that #ight result in a patent

are nor#ally expensed as incurred.

6atents • (xclusive right granted "y the federal govern#ent to sell or

#anufacture an invention.

• ,ost is purchase price plus legal cost to defend.

• A#orti:e cost over the shorter of useful life or 27 years.

• Research and develop#ent costs that #ight result in a patent

are nor#ally expensed as incurred.

Technology

• A category of intangi"le assets that includes a co#pany/s

9e"site and any co#puter progra#s 9ritten "y its e#ployees.

Technology

• A category of intangi"le assets that includes a co#pany/s

9e"site and any co#puter progra#s 9ritten "y its e#ployees.


http://slidepdf.com/reader/full/acct2020-introduction-to-accounting-for-non-business-majors-chapter-8 15/17Slide 6&McGra!"ill#Irin

7ranchises • Legally protected right

purchased "y a

franchisee to sell

products or provideservices for a specified

period and purpose.

• Purchase price is an

intangi"le asset that isa#orti:ed.

7ranchises • Legally protected right

purchased "y a

franchisee to sell

products or provideservices for a specified

period and purpose.

• Purchase price is an

intangi"le asset that isa#orti:ed.


Licenses and "perating!ights

• Li#ited per#issions to

use a product or service

according to specificter#s and conditions.

• ;ou #ay "e using

co#puter soft9are that

is #ade availa"le to youthrough a ca#pus

licensing agree#ent.

Licenses and "perating!ights

• Li#ited per#issions to

use a product or service

according to specificter#s and conditions.

• ;ou #ay "e using

co#puter soft9are that

is #ade availa"le to youthrough a ca#pus

licensing agree#ent.


http://slidepdf.com/reader/full/acct2020-introduction-to-accounting-for-non-business-majors-chapter-8 16/17Slide 6'McGra!"ill#Irin

2ocus on Cash 2los

"perating Activity

*Indirect method,

Effect on

Cash 7lo)s

&epreciation and amortiation 85ain on sale 3Loss on sale 8Loss due to impairment 8

Investing Activities6urchases of long3lived assets 3-ales of long3lived assets 8


http://slidepdf.com/reader/full/acct2020-introduction-to-accounting-for-non-business-majors-chapter-8 17/17$ %&&8 (h M G "ill C i I

End o Chapter 8

acct2020 introduction to accounting for non-business majors chapter 8

Documents